20 dollars. Doesn’t seem like a lot of money does it? I mean what can you buy if you were to go out for 20 bucks? Two beers, a nice appetizer or a cheap dinner. Over the course of an entire week, let’s be honest, it wouldn’t be too hard to save 20 dollars.
When looking at 20 dollars in present terms it really isn’t that much. That is, until you see what consistently saving 20 dollars over a meaningful period of time can result in. All it takes is a little self-discipline and financial savviness.
The Savings Commitment
Let’s say for 30 years you made a commitment to save $20 a week. How would you save this small sum each week? Easy, by simply spending $20 less when you go out. Drink two less beers, order one less appetizer or skip on those bottomless mimosas for your Sunday brunch.
Although it may seem small, saving that $20 a week can translate to substantial savings throughout an entire year. How much you may ask? 1,080 bucks to be exact.
Now here comes the kicker.
Invest the Savings
You’re smart and finance savvy, so with that extra $1080 you’re saving a year you decide to invest it in a diversified portfolio. Let’s assume the portfolio averages an annualized return of 7% for the 30 years. Guess what your investment of your saved beer, appetizer and bottomless mimosa money turns into at the end of those 30 years.
Drumroll please… $102,018.
By simply saving 20 bucks a week and letting it ride in a diversified portfolio earning 7%, you would have over $100,000 at your disposal 30 years down the road. Think of how many Sundays of bottomless mimosas or finely-crafted IPAs that money could buy.
Here’s a stellar line graph showing how your $20 a month grows at 7% over that 30 year period in three year increments in case you don’t believe me.
The Big Picture
As you have probably figured out by now, simply setting aside a small amount of money a month can translate into significant compounded savings down the road. But it’s not just saving money with beers and mimosas that can result in this compounding.
Setting aside money from a paycheck into a Traditional IRA, Roth IRA or your employer’s 401k can have the same effect no matter how small the amount. In the end, it’s all about consistently saving and investing your excess money.
So we’ve discovered that 20 dollars really isn’t that much money; at least in present terms. Next time you order that beer or indulge on that appetizer remember that even the smallest savings can reap substantial rewards in the future; that is if you consistently save and intelligently invest over a long period of time.
The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jacob Dahlstrum and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Roth IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. The above is a hypothetical example for illustration purpose only and does not represent an actual investment. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about you individual situation.